John F. Kennedy
Address to the Economic Club of New York
Delivered 14 December 1962
Source: John F. Kennedy Presidential Library & Museum
This is audio of the address with accompanying video of President Kennedy.
I have digitally remastered the audio and video for maximum clarity and minimal noise.
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Less than a month ago this Nation reminded the world that it possessed both the will and the weapons to meet any threat to the security of free men. The gains we have made will not be given up, and the course that we have pursued will not be abandoned. But in the long run, that security will not be determined by military or diplomatic moves alone. It will be affected by the decisions of finance ministers as well as by the decisions of Secretaries of State and Secretaries of Defense; by the deployment of fiscal and monetary weapons as well as by military weapons; and above all by the strength of this Nation's economy as well as by the strength of our defenses.
You will recall that Chairman Khrushchev has said that he believed that the hinge of world history would begin to move when the Soviet Union out-produced the United States. Therefore, the subject to which we address ourselves tonight concerns not merely our own well-being, but also very vitally the defense of the free world. America's rise to world leadership in the century since the Civil War has reflected more than anything else our unprecedented economic growth. Interrupted during the decade of the thirties, the vigorous expansion of our economy was resumed in 1940 and continued for more than 15 years thereafter. It demonstrated for all to see the power of freedom and the efficiency of free institutions. The economic health of this Nation has been and is now fundamentally sound.
But a leading nation, a nation upon which all depend not only in this country but around the world, cannot afford to be satisfied, to look back or to pause. On our strength and growth depend the strength of others, the spread of free world trade and unity, and continued confidence in our leadership and our currency. The underdeveloped countries are dependent upon us for the sale of their primary commodities and for aid to their struggling economies. In short, a prosperous and growing America is important not only to Americans - it is, as the spokesman for 20 Western nations in the Organization for Economic Cooperation and Development, as he stressed this week, of vital importance to the entire Western World.
This economy is capable of producing without strain $30 to $40 billion more than we are producing today. Business earnings could be $7 to $8 billion higher than they are today. Utilization of existing plant and equipment could be much higher; and if it were, investment would rise. We need not accept an unemployment rate of 5 percent or more. There is no need for us to be satisfied with a rate of growth that keeps good men out of work and good capacity out of use.
Our choice, therefore, boils down to one of doing nothing and thereby risking a widening gap between our actual and potential growth in output, profits, and employment - or taking action, at the Federal level, to raise our entire economy to a new and higher level of business activity.
If we do not take action, those who have the most reason to be dissatisfied with our present rate of growth will be tempted to seek shortsighted and narrow solutions - to resist automation, to reduce the work week to 35 hours or even lower, to shut out imports, or to raise prices in a vain effort to obtain full capacity profits on undercapacity operations. But these are all self-defeating expedients which can only restrict the economy, not expand it.
There are a number of ways by which the Federal Government can meet its responsibilities to aid economic growth. We can and must step up the development of our natural resources.
But the most direct and significant kind of Federal action aiding economic growth is to make possible an increase in private consumption and investment demand - to cut the fetters which hold back private spending. In the past, this could be done in part by the increased use of credit and monetary tools, but our balance of payments situation today places limits on our use of those tools for expansion. It could also be done by increasing Federal expenditures mole rapidly than necessary, but such a course would soon demoralize both the Government and our economy. If Government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency.
The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system; and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.
I am not talking about a "quickie" or a temporary tax cut, which would be more appropriate if a recession were imminent. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last 5 years that our present tax system, developed as it was, in good part, during World War II to restrain growth, exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incentives for personal effort, investment, and risk-taking.
In short, to increase demand and lift the economy, the Federal Government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.
But you can understand that under these circumstances, in general, that any new tax legislation enacted next year should meet the following three tests:
First, it should reduce the net taxes by a sufficiently early date and a sufficiently large amount to do the job required. Early action could give us extra leverage, added results, and important insurance against recession. Too large a tax cut, of course, could result in inflation and insufficient future revenues - but the greater danger is a tax cut too little or too late to be effective.
Second, the new tax bill must increase private consumption as well as investment. Consumers are still spending between 92 and 94 percent of their after-tax income. But that after-tax income could and should be greater, providing stronger markets for the products of American industry. When consumers purchase more goods, plants use more of their capacity, men are hired instead of laid off, investment increases and profits are high.
Corporate tax rates must also be cut to increase incentives and the availability of investment capital. The Government has already taken major steps this year to reduce business tax liability and to stimulate the modernization, replacement, and expansion of our productive plant and equipment. We have done this through the 1962 investment tax credit and through the liberalization of depreciation allowances - two essential parts of our first step in tax revision which amounted to a 10 percent reduction in corporate income taxes worth $2.5 billion. Now we need to increase consumer demand to make these measures fully effective - demand which will make more use of existing capacity and thus increase both profits and the incentive to invest. In fact, profits after taxes would be at least 15 percent higher today if we were operating at full employment.
For all these reasons, next year's tax bill should reduce personal as well as corporate income taxes, for those in the lower brackets, who are certain to spend their additional take-home pay, and for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital.
And I am confident that the enactment of the right bill next year will in due course increase our gross national product by several times the amount of taxes actually cut. Profit margins will be improved and both the incentive to invest and the supply of internal funds for investment will be increased. There will be new interest in taking risks, in increasing productivity, in creating new jobs and new products for long-term economic growth.
Other national problems, moreover, will be aided by full employment. It will encourage the location of new plants in areas of labor surplus and provide new jobs for workers that we are retraining and facilitate the adjustment which will be necessary under our new trade expansion bill and reduce a number of government expenditures.
It will not, I'm confident, revive an inflationary spiral or adversely affect our balance of payments. If the economy today were operating close to capacity levels with little unemployment, or if a sudden change in our military requirements should cause a scramble for men and resources, then I would oppose tax reductions as irresponsible and inflationary; and I would not hesitate to recommend a tax increase, if that were necessary. But our resources and manpower are not being fully utilized; the general level of prices has been remarkably stable; and increased competition, both at home and abroad, along with increased productivity will help keep both prices and wages within appropriate limits.
The same is true of our balance of payments. While rising demand will expand imports, new investment in more efficient productive facilities will aid exports and a new economic climate could both draw capital from abroad and keep capital here at home. It will also put us in a better position, if necessary, to use monetary tools to help our international accounts. But, most importantly, confidence in the dollar in the long run rests on confidence in America, in our ability to meet our economic commitments and reach our economic goals. In a worldwide conviction that we are not drifting from recession to recession with no answer, the substantial improvement in our balance of payments position in the last two years makes it clear that nothing could be more foolish than to restrict our growth merely to minimize that particular problem, because a slowdown in our economy will feed that problem rather than diminish it. On the contrary, European governmental and financial authorities with almost total unanimity, far from threatening to withdraw gold, have urged us to cut taxes in order to expand our economy, attract more capital, and increase confidence in our future.
Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.
In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.
I repeat: our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve - and I believe this can be done - a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future.
This Nation can afford to reduce taxes, we can afford a temporary deficit, but we cannot afford to do nothing. For on the strength of our free economy rests the hope of all free nations. We shall not fail that hope, for free men and free nations must prosper and they must prevail.
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